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Last Minute IRA Contributions: Traditional & Roth IRAs

We at Mitlin Financial hope that you had a healthy and successful 2016. As we move full steam ahead into 2017 and into tax season, we want to make sure that you are all set when it comes to saving for your retirement. Contributing to an Individual Retirement Account, better known as an IRA, can be a powerful retirement saving tool. It is important to understand your time and contribution constraints for making last minute contributions. In addition to the inherent benefits of contributing to your IRA, staying informed of the correct contribution limits and deadlines can be the difference between contributing to your account correctly and incurring unwanted penalties or fees.

First and foremost, it is crucial to confirm with your investment advisor which type of IRA you hold. There are those IRAs that are geared towards an individual’s retirement savings, such as the Traditional IRA and Roth IRA, and then there are those IRAs that are designed to help small businesses and the self-employed build retirement savings; also known as the SIMPLE IRA and SEP IRA. In this article we will cover only the individual end of the spectrum and we’ll get into further depth on the small business and self-employed retirement accounts later.

Easy enough to remember is the fact that the contribution limits associated with Traditional and Roth IRAs are the same. Although monies are contributed tax-deferred into a Traditional IRA and after tax into a Roth IRA, the contribution limit for both types of retirement plan accounts is $5,500.00. Be sure to check with you tax advisor regarding the tax deductibility of Traditional IRA contributions.

Just as important as knowing the limits of how much you can contribute to your IRA, is the deadline by which you can make such a contribution. Although there are retirement accounts that give you until the year end to contribute, Traditional and Roth IRAs are a bit different. The differentiating factor is that you have the ability to contribute (or max out) your account by your tax filing due date of the following year. For example, you can max out your Traditional IRA for 2016 as late as April 17, 2017. And while it is not recommended to procrastinate, it is important to know that extensions DO NOT apply to IRA contributions.

When making your last minute contributions, another important consideration for those of you over or who attained the age of 50 in 2016, are the catch-up contribution limits. As you draw closer to your full retirement age, you have ability to defer a little extra into your IRAs which is something that you should always look to take advantage of. Like the normal contribution limits for Traditional and Roth IRAs, the catch-up contribution limits are also the same. If you are over or have attained the age of 50 you can contribute an additional $1,000.00 to your Traditional IRA or Roth IRA. Even easier to remember is that the deadline for a catch-up contribution is the same as the normal contribution deadline.

If you happen to be one of the many individuals who have either a Traditional IRA or a Roth IRA (or even both for that matter), it can sometimes be difficult to remember all of the rules and particulars regarding contribution limits and deadlines. Remember that you can contribute to both a Traditional IRA and a Roth IRA in any given year as long as the combined total contribution does not exceed $5,500.00. Given that tax deductibility is a factor when contributing to a qualified retirement account, it is crucial that you consult with your tax advisor prior to doing so. Be sure to check out the Mitlin Minute edition of this particular topic and if you’re interested in learning more about individual retirement accounts such as Traditional and Roth IRAs, do not hesitate to give us a call. Let Mitlin Financial, Inc. help to educate, guide and facilitate your financial future!

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